EXIM Policy of India: A Brief Perspective of Changes Notes

In the pre-reform era Indian import policy had two constituents:

1. Import Restrictions: In the first phases of development, India had to import capital equipment, industrial raw material, machinery, spare parts, etc. From time to time it had to import food grains too, but due to stagnant exports, government had to decide to import curtail. Import was grouped under the categories of: Banned items, canalized items, restricted items, and items under OGL (Open General License). Severe limits were imposed on imports of not-essential goods. Great import tariffs were utilised to control import.

2. Import Substitution: Import substitution depicts declining the dependability on imports, i.e., to generate goods that we are importing. Two wide goals of the programme of import substitution in India were:

(a) To save scarce foreign currency for the import of more significant goods,

(b) To acquire self-reliance in the production of as many goods as possible.

Till 1950-56, there was no obvious Exim policy and no import restrictions of any type. In the second half of the decade (1956-61), the government levied quantitative restrictions on imports and efforts were made to improve exports. Export subsidisation was launched in 1962, mainly to offset the penalties that quantitative restrictions levied. To strengthen exports, the currency was devaluated in 1966.

At the end of the sixties and mid-seventies, export subsidies were restored and augmented and import policy became very restrictive and complicated.

Caution: To bring stability to the policy and to reduce uncertainties, the government announced its EXIM policy in 1985 for three years, without any major deviation from the earlier policy. But it did represent some simplification as the number of items in the category of Open General License (OGL) for capital goods import increased from nil in 1975 to over 1,100 items in 1988.

It is important to note that several exports incentives were introduced or spread, particularly after 1985. Exporters were offered Replenishment (REP) licenses for amounts that were nearly twice their imports needs. These REP licenses permitted the holder to even import items in the limited list. These REP were liberally tradable in the market. Export profits were excused from tax, and interest rate on income tax was decreased. Duty-free import of capital goods was permitted in chosen export industries.

With a goal of enhancing the balance of payment position of the country, the EXIM policy of 1990 launched more liberalised steps: The OGL list was spread and a scheme of automatic licensing was launched under which up to 10% of the value of earlier year’s license could be imports.

A scheme of Star Trading House was launched for exports with average annual net foreign exchange earnings of Rs. 75 crore in the earlier three licensing years of the base period. Star Trading Houses are eligible for the grant of exclusive additional licenses computed at the rate of 15% of net foreign exchange earned in the earlier year.

Under the Duty Exemption Scheme, a blanket advance licensing has been launched for manufacturers with minimum foreign exchange earnings of Rs. 10 crore in the earlier three years.

It was since 1991 that radical changes and reforms were launched in the EXIM policy. There has been stable curtailment of import tariffs and liberalisation of quantitative restrictions. The rupee has been made nearly fully convertible on the current account.

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